2025 HELOC and Home Equity Loan Requirements

Are you considering tapping into your home equity to fund a home improvement project, consolidate high-interest debt or cover a significant expense? If so, a home equity line of credit (HELOC) or a home equity loan might be just what you need.  

Each option has unique financial benefits, and choosing the right one depends on how you plan to use the funds, your financial situation, and the features that matter most to you.  

Let’s break down everything you need to know about HELOCs and home equity loans, so you can decide which option fits your needs best. 

Are you ready to explore tailored loan options that meet your goals? Discover what’s possible with Rate’s HELOC solutions here. 

Before you decide, it’s important to understand what each option brings to the table and how it could impact your financial plans. 

A HELOC works as a revolving line of credit. You’re approved for a credit limit, and you can borrow what you need during a certain time period. 

Many homeowners prefer HELOCs for ongoing expenses like home improvements because they offer flexibility during the draw period. Credit unions, banks and Rate offer HELOCs, with interest rates that can vary based on credit history. 

More: Home Equity Line of Credit Calculator | How Much Can I Borrow? 

A home equity loan provides a single lump-sum of money upfront. This type of loan typically has a fixed interest rate and predictable monthly payments, which can be helpful if you’re covering a large, one-time expense like debt consolidation.  

Keep in mind that these loans often come with closing costs and may have slightly higher interest rates than a HELOC due to their fixed rate structure. Both HELOCs and home equity loans leverage your home’s value, but they’re different in a few key ways. 

Both options can be valuable, but the best choice depends on your needs and overall loan amount. 

Home equity loans generally have a fixed interest rate, while HELOCs usually use variable interest rates. Rate offers HELOCs with either fixed* or variable** interest rates. 

Fixed rates provide stability, but variable rates might start lower and adjust based on the market, making HELOCs potentially more cost-effective in the long term. 

A home equity loan comes with fixed monthly payments over a set period of time. In contrast, a HELOC allows more flexibility during the draw period since you can borrow and repay multiple times, which is useful for projects with fluctuating costs. 

With a home equity loan, you receive all funds upfront, making it ideal for larger, immediate needs like personal loans or debt consolidation.  

A HELOC provides a flexible credit line, allowing you to draw funds as needed, which can be helpful for long-term projects with changing costs. 

Qualifying for a HELOC or home equity loan comes down to a few essential factors, including credit score, loan-to-value ratio (LTV) and debt-to-income ratio (DTI).  

Lenders review and evaluate these aspects to ensure applicants can responsibly manage their debt. 

For a HELOC, lenders assess specific factors to determine eligibility. These requirements help lenders check whether you can handle a second mortgage or a combined loan tied to your home’s equity. 

Typically, you need a credit score of at least 620 for HELOC approval, even though some lenders may require higher scores to offer lower interest rates.  

A strong credit profile, which includes good credit and a history of timely payments, can also improve your chances of favorable HELOC rates and more flexible terms. However, bad credit may limit these options. 

Lenders usually expect an LTV of 80% or less, meaning you should have at least 20% appraised value equity in your home. This level of equity helps demonstrate you’ve built enough stake in your property to minimize the risk to the lender.  

For example, if your home’s market value is $400,000, a mortgage balance below $320,000 keeps you within the preferred LTV range. 

Lenders look closely at your gross monthly income and DTI ratio to determine if you can manage monthly payments on a new loan.  

This ratio takes into account your current obligations like credit card payments, existing monthly debt, and other installments like personal loans.  

Ideally, your DTI ratio should be under 43%. Stable income, shown through pay stubs and tax returns, reassures lenders of your ability to handle payments long-term. 

Learn more: What are the benefits of a HELOC? 

Low credit score, high DTI or limited home equity can disqualify you from a HELOC. Lenders also assess your credit report for any red flags, such as recently missed payments or financial instability.  

Any history of foreclosure or inconsistent income might also decrease your chances of qualifying for a HELOC. 

Requirements for home equity loans are similar to HELOC requirements but with a few differences. These differences can make a home equity loan more suitable for certain borrowers, particularly those who like structured repayment terms. 

A credit score of 620 or higher is generally required for a home equity loan, even though some lenders might set a higher benchmark.  

A higher score improves your chances of getting favorable home equity loan rates. Lenders may look at your history of interest payments and other debts, such as credit cards, to assess the risk they’ll take by giving you a home equity loan. 

Many lenders also require a home appraisal to verify your property’s appraised value, confirming its market value equals the loan request.  

The appraisal helps lenders determine the amount of money they’re comfortable lending to you. 

For home equity loans, the LTV cap is typically around 80%, meaning you must have at least 20% equity in your property.  

If you’re thinking about purchasing another property, a cash-out refinance could offer a lower interest rate compared to a home equity loan.  

However, a home equity loan keeps your existing mortgage intact, making it a better choice if you don’t want to change your existing terms through refinancing. 

Interest rates are a critical factor when deciding between a HELOC and a home equity loan.  Rates depend on economic conditions, your credit score, and specific factors like the value of your home and mortgage rates.  

Understanding the rate structure for each loan type will help you make the most optimal choice for your financial goals. 

HELOCs typically come with variable interest rates tied to the prime rate, meaning your payments may fluctuate over time. Rate offers HELOCs with either fixed or variable interest rates.  

During the draw period, you may only pay interest, but in the repayment period, you’ll begin chipping away at the principal.  

This flexibility makes HELOCs a great option for managing home renovations or large personal finance goals without adding strain to your budget. 

Applying for a HELOC involves a hard inquiry on your credit report, which may temporarily lower your score. However, responsible borrowing can lead to improvements over time.  

Consistent payments on a HELOC not only reduce your new loan balance but can also positively impact your FICO score, especially if you avoid missed payments.*** 

More info here: Does a HELOC affect my credit score? 

Home equity loans usually offer a fixed interest rate. This feature gives you the stability of knowing your monthly payments won’t change, which can simplify budgeting, especially if you're using the loan for big one-time expenses. 

While most home equity loans have fixed rates, some lenders offer variable rates that could start lower.  

Fixed rates provide consistency, which can be especially useful for real estate purchases or projects with a clear budget because you won’t have to worry about higher interest rates affecting your mortgage payment. 

The loan term affects your monthly payments; shorter terms generally lead to higher payments but usually reduce the amount you’ll pay in interest.  

Longer terms lower monthly payments but increase overall interest, which you might want to consider if you’re managing an existing mortgage and want to balance all your monthly expenses.  

Making sure you have sufficient income can make it easier to commit to a loan term that aligns with your financial goals and avoids unnecessary strain on your monthly income. 

As you’ve seen, both HELOCs and home equity loans offer unique ways to access your home equity for expenses like home improvements, debt consolidation or unexpected costs.  

A HELOC brings flexibility, letting you borrow what you need when you need it. If you’re ready to take advantage of this option, Rate’s HELOC makes the process simple, with competitive interest rates and flexible terms to suit your financial goals.  

Explore how Rate’s HELOC can unlock your home’s potential and give you the funding you need right when you need it. 

^{*Rate home equity line of credit (HELOC) is an open-end product where the full loan amount (minus the origination fee) will be 100% drawn at the time of origination. The initial amount funded at origination will be based on a fixed rate; however, this product contains an additional draw feature. As the borrower repays the balance on the line, the borrower may make additional draws during the draw period. If the borrower elects to make an additional draw, the interest rate for that draw will be set as of the date of the draw and will be based on an Index, which is the Prime Rate published in the Wall Street Journal for the calendar month preceding the date of the additional draw, plus a fixed margin. Accordingly, the fixed rate for any additional draw may be higher than the fixed rate for the initial draw. This product is currently not offered in the states of New York, Kentucky, West Virginia, Delaware and Maryland. The HELOC requires you to pledge your home as collateral, and you could lose your home if you fail to repay. Property insurance is required as a condition of the loan and flood insurance may be required if your property is located in a flood zone. Borrowers must meet minimum lender requirements in order to be eligible for financing. Available for primary, second homes and investment properties only. Dependent on minimum credit score and debt-to-income requirements. Occupancy status, lien position and credit score are all factors to determine your rate and max available loan amount. Not all applicants will be approved. Applicants subject to credit and underwriting approval. Contact Rate for more information and to discuss your individual circumstances. Restrictions apply.} 

^{**The variable rate home equity line of credit (HELOC) is an open-end product where the borrower can withdraw funds and make interest only payments during the draw period. Monthly payments will increase to include both principle and interest payments after the draw period has ended. A minimum 90% of the total approved HELOC amount must be disbursed. The remaining 10% of the approved credit line can be drawn down later as needed during the draw period. The monthly variable interest rate is based on an Index, which is the Prime Rate published in the Wall Street Journal plus a fixed margin. This product is currently only available in California. The HELOC requires you to pledge your home as collateral, and you could lose your home if you fail to repay. Property insurance is required as a condition of the loan and flood insurance may be required if your property is located in a flood zone. Borrowers must meet minimum lender requirements in order to be eligible for financing. Available for primary, second homes and investment properties only. Property type, loan-to-value, and FICO restrictions and requirements apply. Dependent on minimum credit score and debt-to-income requirements. Occupancy status, lien position and credit score are all factors to determine your rate and max available loan amount. Not all applicants will be approved. Applicants subject to credit and underwriting approval. Contact Rate for more information and to discuss your individual circumstances. Restrictions apply.} 

_{***Rate does not provide credit counseling or credit repair services.}